Essence and phases of international economic integration

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1 Электронный научный журнал «ИССЛЕДОВАНО В РОССИИ» Essence and phases of international economic integration Teng Delux Belgorod State University The trends that characterize the main directions of the world economy to the fore gradually put forward the motion to all the countries closer and more effective economic integration. Like any major social phenomenon, economic integration and its experience of the researchers put the task of scientific definition, because from this depends largely on understanding the essence of the phenomenon, its dynamics and the predictability of the process. International economic integration - is a high, effective and promising stage of development of world economy, a new and more challenging phase of the internationalization of economic relations. At this stage is not only a convergence of national economies, but also provides a joint solution of economic problems. Consequently, economic integration can be represented as a process of economic interaction between countries, leading to a convergence of economic mechanisms, taking the form of interstate agreements and concerted regulated interstate bodies. In particular, economic integration is expressed in [2]: cooperation between the national economies of different countries and all or part of their unification; elimination of barriers to the movement of goods, services, capital, labor force between these countries; convergence of the markets of each individual country to form one single (common) market; reducing differences between economic agents belonging to different States; absence of any form of discrimination of foreign partners in each of the national economy etc. The processes of economic integration are both bilaterally and on a regional or global basis. As a characteristic feature of integrations can now be called their development at the regional level: create a holistic regional economic complex with common supranational and intergovernmental authorities. Economic integration at the international level has its own logic of development, assuming passage through certain stages - from lowest to highest, as well as their own place and the system prevailing at the date of the international ties of another kind - political, culture and even civilization. B. Balassa first introduced the dual consideration of the phenomenon of

2 Электронный научный журнал «ИССЛЕДОВАНО В РОССИИ» integration - both the process (implementation of measures to eliminate discrimination in the integration space), and also highlighted the forms of integration (free trade area, customs union, common market, economic union, a full economic integration) [6; 7]. The concept of market integration involves the destruction of obstacles to free movement of goods and factors of production. At first, in the course of integration is required integration of markets of partner countries on the basis of full libration trade relations and not allowed state intervention in this process. Implementation of the integration depends only on the political decision of combined markets [1, p. 80, 3, p. 7-8]. Neo-liberal concept allows for government intervention to level the operation of integrating national economies. Representatives of institutional market-direction (M. Allais, B. Balassa, Heylperin, M. Bié, etc.) uphold the optimum ratio of state regulatory intervention and market forces. The state's role is to level the playing field of competition and harmonization of policies integrating countries [1, p. 80]. A major prerequisite for the origin and dynamic development of economic integration is the existence of a definite political consensus of the participants on the main issues, first of all bilateral and multilateral relations in general and its main feature is the isolation of specific regional interests, which are the driving force for regional policy and economy. World experience shows that the original idea of integration of developing countries was brought to life the need for joint efforts to overcome economic backwardness and inefficient colonial structure of national economies, to strengthen state sovereignty. Later appear the prerequisites of qualitative changes in the nature of economic relations as a result of the rapid rise of the productive forces (or the purposeful intent to modernize them).

3 Электронный научный журнал «ИССЛЕДОВАНО В РОССИИ» In today's world there are already dozens of international economic integration groupings. Among the numerous integrated groups can be distinguished: in Western Europe - the European Union (EU); in Eastern Europe - Commonwealth of Independent States (CIS); in North America - North American Free Trade Association (NAFTA); in the Asia-Pacific - Association of Asia Pacific Economic Cooperation (APEC); in Asia - the Association of Southeast Asian Nations (ASEAN); in Latin America - the Southern Common Market (MERCOSUR); in Africa - the Economic Community of West African States (ECOWAS) and the Customs and Economic Union of Central Africa ( UDEAC) and others (see Fig. 1). There is no unanimity on the stage of integration. Some authors have described the 4 or 5 stages, and the other 6 stages. Some believe that to be a shift from a monetary union to economic union and some vice versa. The development of economic integration is in such stages as the free trade area, customs union, common market, monetary union, economic union and political union (see Appendix. 1). Free Trade Zone Stage of Integration Development stage of economic integration As shown in Figure 2, the level of economic integration is allocated the following unions and their characteristics [4, 5, 6, 7, 8]: The first form of economic integration is free trade zone (FTZ). In the modern sense is a preferential area, within which is supported free of quantitative restrictions on international trade in goods. As a rule, the specific agreement of the relevant areas and provide for the

4 Электронный научный журнал «ИССЛЕДОВАНО В РОССИИ» establishment of a free trade area in industrial goods over a number of years through the progressive and reciprocal abolition of customs duties and other non-tariff restrictions. Agreement on the establishment of an FTA, as a rule, based on the principle of mutual moratorium on the increase in duties, according to which the partners cannot unilaterally raise tariffs or to erect new trade barriers. However, each country is allowed to define its trade policy towards other countries not members of the FTA. Thus, for example, tariffs on products for countries not members of an FTA may be different from each other. The free trade agreement is the most popular form of regional economic integration, which accounts for more than 90% of regional agreements [9]. The parties have the opportunity to increase the level of customs duties or to apply special protective measures with regard to the conditions, duration, incidence of protective measures, and size of fees, as provided in the agreements on free trade area. The advantages of such agreements should include a more stable and predictable trade policies of member countries. The functioning of the FTA allows countries more clearly fulfill its commitments under the Uruguay Round 1, to improve the whole system of foreign economic activity, more flexibility to adapt to international practices. Creating a FTA leads to increased competition in the domestic market, which is not always beneficial impact on the quality and technical level of products of domestic industry. Liberalization of imports poses a serious threat to domestic producers of goods, increases the risk of bankruptcy of those who cannot withstand competition from more competitive and quality goods from abroad. Without their support from the state, it is high risk that foreign producers displace native with his same home market, despite protection means are used. There is also a risk of consolidation of foreign companies in the industrial structures "host country" [5, p. 318]. The next stage of international economic integration is a Customs Union (CU). This is a form of collective protection. It can be defined as an agreement between two or more states to abolish customs duties on trade between them. According to Art. XIV of the General Agreement on Tariffs and Trade (GATT) 2, the Customs Union plans to replace several customs territories in 1 The Uruguay Round - the multilateral negotiations under the General Agreement on Tariffs and Trade (GATT), which began in Punta del Este (Uruguay) in September 1986 for their completion in April 1994 by 111 member states have adopted more than 50 documents (agreements, decisions, protocols and declarations), aimed at streamlining and liberalization of international trade. The most important document is the Agreement Establishing the World Trade Organization (WTO). 2 During the existence of the GATT average tariffs gradually, but steadily declined, largely due to the results of eight rounds of trade negotiations. In some cases, imports of goods for individual items of commodity nomenclature in general have been fully liberalized. As a result of the Uruguay Round agreements, developed countries have reduced the average (not weighted by the real structure of imports), rates of import customs tariff on industrial goods by 40%, from 6,3% to 3,8%. From 20% to 44% increase in the share of manufactured goods imported by developed countries duty-free. Tariffs on agricultural products in view of charging in the form of transfer of nontariff measures to tariff in developed countries decreased by 36% within six years, and developing countries by 24%

5 Электронный научный журнал «ИССЛЕДОВАНО В РОССИИ» a complete abolition of customs duties within the trade agreement and the establishment of a common external customs tariff. A number of publications define FTA and Customs Union not enough correct. The main difference between them lies in the fact that the FTA provides for the gradual reduction of customs duties, removal of non-tariff barriers, etc. Ultimately, the FTA is intended to provide duty-free trade between member countries, and general tariff. In the Custom Union there are free trade between member countries of the Union and the common customs tariff in relation to countries outside the Union. The modern interpretation of the fourth paragraph of Art. XXIV of the GATT "does not provide for any governing principle in regard to determining the differences between the concepts of FTA and Customs Union. It further states that the original rules of the game are set by members of the FTA, which continue to follow their own foreign trade policy, and countries - members of the Custom Union firstly coordinates it in terms of customs and tariff regulations and procedures. Within the Custom Union, It is facing major changes in the structure of production and consumption of the participating countries. Through a common foreign trade policy, referring to the customs tariffs, various external preferences, protectionism, etc., the participating countries regulate trade flows with the level of external tariff and the resulting prices. This in turn gives rise to a reorientation of resources in consumption and production. According to some Western experts, within the Custom Union production is "rationalized in accordance with the theory of comparative advantage 3 ". Qualitatively higher level of integration - a Common Market (CM) [5, p ]. To date, this phase of integration is implemented in the European Union, on the basis of experience which can be made practical conclusions and evaluation. It is possible that in the future, with the within ten years, without reducing them to the least developed countries. 36% (from 22.5 billion to $ 14.5 billion) were reduced export subsidies to agriculture, almost half of that amount comes from EU countries. At 18% (from 197 to 162 billion dollars) to reduce domestic support to agricultural producers. Increase the number of tariff lines for industrial products, are under negotiation in the GATT (the so-called "bound" tariff lines). For industrial goods in general must be consistent about 83% of all tariff lines, and the Agricultural - almost 100%. 3 David Ricardo, in his book "Principles of Political Economy and Taxation" (1817) has shown convincingly that interstate specialization is good not only in cases where a country has an absolute advantage in the production and marketing of the product compared with other countries i.e. not necessary that the production costs of the product were less than the cost of similar products created abroad. According to Ricardo it is enough, that the country has exported the goods for which it has comparative advantage i.e. that for these goods ratio of costs to the cost of other countries would be more favorable than for other goods. Now listen to what they say here in America, ordinary people and congressmen are not versed in the law of comparative advantage. Perhaps, they reason like this: "The level of wages in Europe, of course, much lower than in the U.S. - the most prosperous (and productive) country in the world. If we put our American workers unbridled competition from European workers, who exist on less money than we do, then the real wages of American workers will have to fall sharply. In order to preserve the American standard of living, we badly needed protective tariffs against cheap imports. Ricardo just proves that both of these arguments are wrong. International trade can lead to an increase in real wages of both the European and American labor. The introduction of prohibitive tariffs of any one country or they both will fall in real wages, and here and there. (And we can add that there are currently more advanced means than the protectionist tariffs to ensure at both locations with sufficient opportunities for jobs and a stable price level, these include the right fiscal and monetary policies of central banks).

6 Электронный научный журнал «ИССЛЕДОВАНО В РОССИИ» development of other similar integration schemes, there will be new elements specific to these groups, which will have certain differences from the practice of the European Union (EU). Common Market provides the implementation of several major binding targets that cannot be implemented within the Custom Union. However, it is a customs union, abolishing customs duties between Member States and developing a common commercial policy towards third countries, creates the preconditions of the common market. But to create the Common Market is not enough. The next task is to develop a general policy of development of individual industries and sectors of the economy. With their choice should be based on the fact that it is important for follow-up of integration, what would be the social repercussions of the adoption of appropriate measures, as this will affect the needs and requirements of the customer. Not by chance in the EU during the transition to the common market, as selected areas were identified agriculture and transport. The last task is to create conditions for free movement of capital, labor, services and information complementing the smooth movement of goods. Monetary union complements the existing agreement on a common market and a single monetary policy and gradually transform to a single currency. It is organized by a single central bank or a system of central banks engaged in coordinated monetary and emission policies [4, p. 433]. One of the most difficult phases of Western integration - a seamless transition from common market to economic and monetary union (EMU), based on a single monetary policy in transition to the single European currency - the euro [8]. For economic agents, a single monetary policy and currency means the unity of the monetary and exchange rate policies, including the stock market across the EU, a significant reduction compared with multi-currency environment overhead settlement services transactions, price and exchange rate risks, the timing of transfers and, as a consequence, a decrease of these operators for working capital. It is logical to assume improve the business climate. Replacing the national money to make the overall cost within the euro area transparent and comparable, which increase competition. Economic Union is the highest form of economic integration, in which the single market and monetary union are complemented by the overall economic policy. There are supranational economic agencies, whose decisions are binding for the economic agents of the Union countries [4, p. 433]. In principle, the construction of the Common Market should be completed to build a single economic, legal and information space and to give impetus to move integration group to a qualitatively new level - Economic Union (EU). In Europe a common market was set to start in 1993 and was immediately tasked with creating an economic and monetary union (EMU) by the beginning of Economic Union in the European Union is considered as the transition to

7 Электронный научный журнал «ИССЛЕДОВАНО В РОССИИ» EMU. But this does not mean that the same way economic union will be built within other integration groupings. The functioning of an economic union in schematic form, for example, the European Union, as follows. Main policies of member countries and the Union shall be together in the form of decisions of the Council of Ministers of the member countries, which also followed the course of economic development of each country and the Union as a whole. When inconsistency of economic policy of any of the main directions of economic union or if its conduct impedes the normal functioning of Economic Union, Council of Ministers has taken the necessary steps. For example, member countries should avoid excessive government deficits, and for this was under control. Economic Union involves the free flow of goods and factors of production among member countries and the adaptation of a common foreign trade policy, but it also requires a common currency, harmonization of tariff rates of members, and the common monetary and fiscal policies. EU - economic union, although not perfect since not all EU members have adopted the euro, the currency of the EU, and the difference in tax rates of member countries still remains [8, p. 275]. Political Union - this is a transition from integration to form a unified confederal state [4, p. 433]. Federalism implies the creation of a single state. The driving forces of integration in accordance with this concept, are political factors, and the union meets the needs of countries, as signs co-operation in solving common problems (the formation of a federation or confederation) [1, p. 81]. The transition to economic union raises the question of how to make the coordination of the bureaucracy to be responsible to the citizens of Member States. The answer lies in a political union, in which the central apparatus of the political origin in the economic, social and foreign policies of Member States. The EU is on track to at least partial political union. The European Parliament, which is playing an increasingly important role in the EU, was directly elected by citizens of EU countries in the late 1970's. In addition, the Council of Ministers (the manager and the EU decision-making body) is composed of government ministers from each EU member state. U.S. is an example of an ever closer political union in the United States; independent states were effectively merged into a single nation. Ultimately, the EU can move towards a similar federal structure [8, p. 275]. At a meeting in August 1967 in Bangkok, the ministers of Indonesia, Malaysia, Thailand, the Philippines and Singapore signed an agreement to establish the Association of Southeast Asian Nations (ASEAN). An important objective in the creation of ASEAN was to accelerate economic and cultural development in the countries members of ASEAN, as well as, strengthening peace and security in the region. Adoption of Cambodia to ASEAN, 30 April 1999

8 Электронный научный журнал «ИССЛЕДОВАНО В РОССИИ» has allowed to realize long-held dream of the founders of this organization to unite all 10 states South-East Asia - Cambodia, Brunei (1984), Vietnam (1995), Myanmar (1997), Lao ( 1997), Malaysia, Indonesia, Philippines, Singapore, Thailand. In 2006, the territory of States members of ASEAN, there are about 565 million people. And gross regional product of more than 1.1 trillion dollars and the foreign trade turnover of 1.4 trillion dollars and the rate of economic growth, outstripping the global average, is a center of integration processes in the Asia-Pacific Region, and there is emerging a new balance of power. ASEAN has made a step-by-step approach to the opening of trade with these partners. As she completed a priority free trade agreement, known as ASEAN + 1, namely the ASEAN - Japan, ASEAN - China, ASEAN - South Korea, ASEAN - Australia - New Zealand and ASEAN - India. The second priority is an aggressive movement toward the establishment of ASEAN economic community by Figure 3. Formula АFТА + 1. ASEAN and its six major trading partners reaffirmed their determination to create the world's largest economic bloc on the basis of "East Asian Nations Agreement on free trade and the establishment of a comprehensive economic partnership in East Asia (CEPEA)" in 15 years. CEPEA form the largest economic region with a population of 3 billion people, amounting to 49.6 per cent of the world population and 26 per cent of world GDP. 16 member countries of the future FTA will lead the region, which will surpass the United States and the European Union after the establishment of an independent economic zone. Achievement in the future will not only strengthen its regional trade relations, but also to save them from imports from outside the region (see Fig. 3).

9 Электронный научный журнал «ИССЛЕДОВАНО В РОССИИ» ASEAN is a center of integration processes in the Asia-Pacific region and there is emerging a new balance of power, and constantly strengthens its position in the international economy and politics. Association strengthens and expands its relationship with other partners such as China, Japan, South Korea, India, Australia, New Zealand, USA, EU and Russia (Table 1). In the future, there is the possibility of establishing free economic zones in the Asia-Pacific economic cooperation in general. Table 1. ASEAN Trade with Major Partners in 2008 Country/ Value in US$ million Share to total ASEAN trade (%) region Export Import Total Export Import Total ASEAN , , ,2 27,6 25,9 26,8 Japan , , ,2 11,9 12,9 12,4 ЕU , , ,0 12,8 10,8 11,8 China , , ,1 9,7 12,9 11,3 USA , , ,3 11,5 9,6 10,6 S. Korea , , ,5 4,0 4,9 4,4 Australia , , ,9 3,8 2,2 3,0 India , , ,9 3,4 2,1 2,8 Canada 5 296, , ,7 0,6 0,6 0,6 Russia 2 703, , ,4 0,3 0,8 0,6 New Zealand 4 161, , ,0 0,5 0,4 0,4 Pakistan 4 386,4 460, ,5 0,5 0,1 0,3 Total , , ,6 86,7 83,1 85,0 Others , , ,1 13,3 16,9 15,0 Total , , ,7 100,0 100,0 100,0 From Table 1, we can make the following conclusions that ASEAN was ranked first in its trade and amounted to 26,6% of the total share of trade of this organization, and Japan - 2 place. Must be stressed that in 2008 Russia took 8th place in the ASEAN trade, but its share was only 0.6%. Therefore, ASEAN and Russia should use its comparative advantage in free trade, to gain the mutual benefits of their cooperation, as well as hold meetings between ASEAN and Russia, according to the formula of ASEAN + 1. At present, it is evident that economic integration creates a good relationship between the countries in the process of free movement of goods, services, capital and labor, as well as mutual understanding in the sphere of economy, politics, legislation, and provides and exchanges information etc. Therefore, its stages of development depend on the level of political and economic consensus and the interests of participants.

10 Электронный научный журнал «ИССЛЕДОВАНО В РОССИИ» References 1. Belozubenko V.S, Usov A.S. Ontology of integration processes at the level of regions of the world / / Scientific works of Donetsk National Technical University. Series: Economic. Issue 91, c Vladimirova I.G. Globalization of world economy: issues and implications / / Management in Russia and abroad, number 3, 2001 ( 3. Zhuravskaya E.G. Regional integration in the developing world: non-marxist theory and reality (for example, ASEAN). - M.: "Science". Home Edition eastern literature c Movsesian A.G, Ognivtsev S.B. World Economy: A Textbook. - Moscow: Finances and Statistics, Rybalkin V.E. International economic relations. - 5 ed. M., UNITY-DANA, BA Balassa. Toward a Theory of Economic Integration // Kyklos 1961Volume 14, Issue 1, p BA Balassa. Types of economic integration // International Bank for Reconstruction and Development Charles W.L. Hill, Global Business Today, Fourth Edition. 9. World Trade Organization, Annual Report, 2002 (Geneva: WTO, 2002)

11 Электронный научный журнал «ИССЛЕДОВАНО В РОССИИ» Level Name and year of establishment Countries - members Appendix 1 Preferential Trade Agreement 1. Agreement on Partnership and Cooperation Agreement between the EU and the countries of the former USSR, in Association Agreement with the EU, EU, Belarus, Kazakhstan, Russia, Ukraine Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia, Estonia, Latvia, Lithuania, Slovenia European Free Trade Association (EFTA), 1960 EFTA includes 11 countries, 7 of whom subsequently withdrew from it and entered the EU. The current members of EFTA countries are Switzerland, Norway, Iceland, Liechtenstein. 2. Baltic FTA, in 1993 Estonia, Latvia, Lithuania 3. Visegrad Four, Hungary, Poland, Czech Republic, Slovenia Free Trade Area 4. Central European Free Trade Area (CEFTA), North American Free Trade, NAFTA, Australia-New Zealand trade agreement on deepening economic ties, ANTSSERTA, Asia-Pacific Economic Cooperation, APEC, Association of Southeast Asian Nations, ASEAN, in 1967 Hungary, Poland, Czech Republic, Slovenia, Slovakia Canada, Mexico, USA Australia, New Zealand 21 countries-member Asia, North and South America: Australia, Brunei, Malaysia, Singapore, Thailand, New Zealand, Indonesia, Guinea, Philippines, Taiwan, Hong Kong, China, S. Korea, Japan, USA, Canada, Chile, Colombia, Peru, Russia Indonesia, Philippines, Brunei, Singapore, Malaysia, Thailand, Vietnam, Laos, Burma and Cambodia Customs Union 1. Central American Common Market (CACM), 1961 Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua 2. Arab Common Market, Egypt, Iraq, Jordan, Libya, Mauritania, Syria, Yemen Common Market 1. Latin American Integration Association, ALADI, Southern Cone Common Market, Mercosur, in Caribbean Community and Common Market, CARICOM, 1973 Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay, Venezuela, Paraguay Argentina, Brazil, Uruguay, Paraguay Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Trinidad and Tobago - 13 States 4. Andean Group, 1969 Bolivia, Colombia, Ecuador, Peru, Venezuela

12 Электронный научный журнал «ИССЛЕДОВАНО В РОССИИ» Cooperation Council of Arab Gulf countries, "Oil Six", European Economic Community, EEC, 1957, from the European Union, EU Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE EU Economic Union, Benelux, 1948 Belgium, Netherlands, Luxembourg Economic Union 3. Commonwealth of Independent States, CIS, Arab Maghreb Union, AMU, West African Economic and Monetary Union, UEMOA, Southern African Development Community, SADC, Economic Community of West African States, ECOWAS, in 1975 Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan Algeria, Libya, Mauritania, Morocco, Tunisia Benin, Burkina Faso, Côte d'ivoire, Mali, Nigeria, Senegal, Togo Angola, Botswana, Lesotho, Malawi, Mozambique, Namibia, Swaziland, Tanzania, Zambia and Zimbabwe, South Africa, Mauritania Benin, Burkina Faso, Cape Verde, Côte d'ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, Togo - 16 countries